The evolution of capitalism

« In 1776 the Scottish economist Adam Smith published The Wealth of Nations, probably the most important economics manifesto of all time. Smith’s claim that the selfish human urge to increase private profits is the basis for collective wealth is one of the most revolutionary ideas in human history – revolutionary not just from an economic perspective, but even more so from a moral and political perspective. What Smith says is, in fact, that greed is good, and that by becoming richer I benefit everybody, not just myself. Egoism is altruism. Smith taught people to think about the economy as a ‘win-win situation’, in which my profits are also your profits.

The first and most sacred commandment of Capitalism is: ‘The profits of production must be reinvested in increasing production. » (Sapiens, Yuval Noah Harari)

This model for enterprises, solely driven by the profit but with profits being reinvested in increasing production, has contributed to an unprecedent growth. Enterprises have emerged to create value to consumers, and by doing so they’ve created value for the whole society.

Why capitalism isn’t contributing positively to the society today is because enterprises are not reinvesting their profits in creating more value. Enterprises are more and more influenced by the stock exchange, by the shareholders. The client is not king anymore, the shareholders are. And shareholders only look for dividends, therefore for short term profits.  They are not committed to the vision of the company, they are not involved in the mission of the company. They don’t care about investing in the employees well-being, they don’t care about investing in tackling the main current challenges of our society such as climate change, the shrinking resources – even when these investments will be beneficial to the enterprise in the long term. They only care about the bottom line of the next quarter.

A vision for businesses to drive impact at scale 

Governments and non profits organizations are supposedly in charge of solving societal problems. But the challenges we face today are too big for nations to solve without a true international cooperation. They have become powerless. Non profits target the symptoms, not the roots of the problems, and they depend on donations or on private or public grants to survive and to operate.  This kind of model isn’t sustainable or scalable as funds can only be spent once. 

Enterprises have become very powerful today and their model is sustainable. They are the ones who can make a change.

In « Give Work », Leila Janah, founder of the social enterprise Samasource, offers this solution to solving poverty: redirect aid money to social enterprises that give dignified, steady, fair-wage work to low-income people, and incentivize big companies to choose suppliers that use this model.

But how to make sure the businesses are working towards society growth and not towards making shareholders wealthier?

Nobel Peace Prize laureate Professor Muhammad Yunus has taken the idea of a business which is not influenced by shareholders to its extreme, advocating for a new type of business model:  social businesses that are created and designed to address a social problem and are a non-loss, non-dividend company, i.e. it is financially self-sustainable (doesn’t depend on donations) and profits realized by the business are reinvested in the business itself (or used to start other social businesses), with the aim of increasing social impact. 

“A charity dollar has only one life; a social business dollar can be invested over and over again.” (Pr. Muhammad Yunus)

Surely, redirecting charity dollars to such not-for-profit social businesses is impactful. But even more impact could be generated if all businesses were committed to engage their stakeholders – investors, employees, and clients which are also citizens of the society – in audacious visions.  

The vision statement is at the core of a business’ strategy.

A vision statement is an aspirational description of what an organization would like to achieve or accomplish in the mid-term or long-term future. It is intended to serves as a clear guide for choosing current and future courses of action.

We need:

– more business leaders with a vision to create shared value for all its stakeholders.  
– more stories of numerous solutions and businesses which are already driving impact at scale. They show that change is possible and inspire other business leaders on how to do it. 

This is our mission at Scalable Impact. We are committed to share inspiring stories about innovative business models with visions to change the narrative about business purpose and success, and inspire individuals and organizations to positively transform their mindset, attitudes and take action.